Strategic acquisitions can assist a business in achieving its growth objectives. While many of these transactions are completed by private equity firms, private companies should consider this strategy as a way to supplement organic growth or create opportunities to accelerate growth when organic growth has stagnated.
There are a number of advantages that present themselves in an acquisition. Some of the benefits of a strategic acquisition include:
- Synergies – A strategic acquisition can uncover many synergies between the companies which can allow the combined organization to reduce duplicate costs, leverage client relationships, open up distribution channels, and improve or advance technology.
- Speed – In most cases, a transaction can allow a business to accelerate its growth at a much quicker pace since the combined companies can leverage resources and opportunities that may not available to the individual companies. Plus, pursuing a pure organic growth strategy often involves a much longer timeframe to nurture customer relationships and develop new products or services as well as free up the necessary resources to complete objectives.
- Personnel – An acquisition offers an opportunity to add talent to an organization in key areas to facilitate growth, upgrade technical skill sets and expertise, and create depth that both individual organizations may be missing. It can also be used to enhance the acquiring company’s succession plan for replacing key executives.
Transactions can take a considerable amount of time and resources, and as such, buyers need to consider how the following aspects may impact them.
- Costs – These include legal, investment banking, accounting, and other costs to complete the acquisition, which can be expensive in certain instances depending on the complexity of the transaction, the due diligence required, and the length of time necessary to complete the deal. Additionally, most transactions are financed so this is another cost that must be factored in.
- Disruption – Acquisitions often take a lot of time and effort to find the right target, understand the target company, complete due diligence, finalize the transaction, and integrate the target company into the acquirer. A point person and acquisition team should be designated to handle the various aspects of the deal.
- Mismatch of cultures – One of the most important parts of a business is its culture. Adding people from companies with very different cultures can often lead to issues that can strain a business. Careful consideration needs to be given to the target company’s culture, as well as the integration strategy, to ensure a successful acquisition.
Acquiring a business can be risky, but with the proper planning and preparation, it can be a good alternative to trying to grow organically. A successful strategic acquisition will create a combined business whose value exceeds that of the individual companies and creates future opportunities for growth and expansion.
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